Life insurers to tighten up process of policy issue, revival

Life insurers are planning stricter checks before issuing and reviving insurance policies to control fraudulent claims.

 The issue becomes important as the Insurance Regulatory and Development Authority of India (IRDAI) recently clarified that life insurers cannot repudiate a claim after three years of the policy being in force even if a fraud is detected.

This provision, in Section 45, is a part of the Insurance Amendment Bill passed by Parliament. Insurers had opposed this provision as they said that it could lead to a surge in fraudulent claims. “Earlier, insurance companies could repudiate claims if there was evidence of material mis-representation or suppression of facts by the customer during the course of the policy,” said Tarun Chugh, MD and CEO, PNB Metlife.

“With the revision to Section 45, insurance companies cannot repudiate such claims after three years of risk commencement. This calls for additional intelligence to be deployed by the insurance sector to further strengthen their sales and renewal processes to ensure proper selection,” he added.

V Viswanand, Senior Director and Chief Operations Officer, Max Life Insurance, said that insurers will have to review their current underwriting policy and processes to ensure that identification and control of such fraudulent customers are managed through effective selection of customers, underwriting and distribution channels.  “This is required to protect the larger interests of policyholders by preventing payout of fraudulent claims,” Viswanand added

 According to industry estimates, fraudulent claims account for nearly 10 per cent of the overall claims paid out. This number is expected to shoot up after the implementation of Section 45.

To curb this practice, the Life Insurance Council is also planning to expedite the process of setting up a fraud repository for life insurers.  

 V Manickam, Secretary General of the Life Insurance Council, says there have been many cases of fraudsters producing fake death certificates to get life insurance claims.

He said that the repository, which will be operational by December, will have a database of all policies so that insurers can share information with one another.  

According to Sunil Sharma, Actuary and Chief Risk Officer at Kotak Life Insurance, “There have been several cases where some fraudsters take life insurance covers from several companies. While they are required to disclose if they have taken a cover from other companies, they do not do so. The information sharing through a fraud repository will enable us to curb this practice.”

 Puneet Nanda, Executive Director at ICICI Prudential Life Insurance, said that the repository initiative would certainly help in identifying industry-wide frauds and unscrupulous entities.